Amazon (AMZN) to Eliot Spitzer: Pound Sand

New York governor Eliot Spitzer wants to force Amazon to collect sales tax on behalf of Amazon customers who live in New York. Amazon's reaction? Pound sand.

In its defense, Amazon invokes bogus arguments such as "complexity," which Saul Hansell at the NYT justifiably ridicules. Spitzer's position, meanwhile, is that New York residents are already obligated to pay the sales tax, and he just wants Amazon to collect it.

The New York fisticuffs are likely immaterial to Amazon's overall performance, but a nationwide change of policy would likely hit Amazon's revenue and profit. If Spitzer wins this latest crusade, therefore, New York could represent the first falling domino.

"Complexity" arguments aside, this issue boils down to how you view sales tax:

As a consumption tax on state residents, or

As a cost-of-doing-business-in-the-state tax on companies (paid by consumers)

If you take the former position, Amazon has no defense. If you take the latter, it does: Physical world retailers benefit from expensive New York state and city services (police, courts, streetsweeping, transportation, public works, etc.) that Amazon doesn't. To the extent that sales taxes are supposed to fund these physical services, Amazon should be exempt.